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Tying Paid Parental Leave to Social Security Is a Terrible Idea

The newly introduced Cradle Act will make Social Security's already precarious outlook worse.

Few if any social programs bear more importance to our nation's senior citizens than Social Security. Each month, nearly 44 million retired workers receives a monthly benefit check, with more than three out of five of these seniors reliant on their payout for at least half of their income. You could rightly say that Social Security is preventing this country from a major elderly poverty crisis.

Then again, it's also a program facing a steep uphill climb. Even though Social Security is in absolutely no danger of going bankrupt, the revenue it's expected to bring in over the next 75 years has been deemed insufficient to support payouts to eligible beneficiaries over that same time frame, according to the 2018 Social Security Board of Trustees report. If an estimated cash shortfall of $13.2 trillion between 2034 and 2092 isn't dealt with, an across-the-board benefits cut of up to 21% may be needed, per the report.

To be clear, numerous proposals to amend Social Security in order to make the program stronger have been proposed by Democrats and Republicans, albeit no consensus has been reached. But every once in a while a proposal involving Social Security comes along that's so terrible it needs to be called out in public. This is one of those instances.

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A paid parental leave proposal tied into Social Security was just introduced

Last week, Sens. Joni Ernst (R-Iowa) and Mike Lee (R-Utah) unveiled a new piece of legislation dubbed the Cradle Act, which would provide paid family leave for natural or adoptive parents. More specifically, the Cradle Act would allow new parents to take between one and three months of paid leave, with the catch they would be agreeing to delay the start of their Social Security retirement benefits.

Here's how it would work: Applicants would notify the Social Security Administration between one month and six months prior to the birth or adoption of a child of their intention to take paid parental leave benefits, and would need to decide whether to take one, two, or three months. They'd also need to give their employers 30 days written notice of their intention to take paid leave.

To qualify, applicants would need to have worked four of the past four quarters, five of the past six quarters, or have worked a minimum of 20 total quarters, to receive benefits. The parental leave benefits would be calculated using Social Security's current disability insurance formula.

Ultimately, for each month of parental leave benefits taken by an applicant, their Social Security claiming date would be postponed by two months. Thus, taking three months of parental leave would require a six-month wait before claiming Social Security benefits, once eligible.

Image source: Getty Images.

We've seen similar legislation before

If all of this sounds somewhat familiar, it's because a paid parental leave bill tied to Social Security was also introduced last year.

Last year, Sen. Marco Rubio (R-Fla.) introduced legislation, the Economic Security for New Parents Act, that he'd worked on with President Trump's daughter Ivanka to give parents the option of funding their paid leave by drawing early on a portion of their Social Security benefits. Rubio's plan was designed to replace about 50% to 80% of working wages, with each month of paid family leave delaying the start of Social Security retirement benefits by three months. Thus, a two-month leave would result in a six-month delay to starting retirement benefits.

Rubio's provision also included the ability for two-parent households to transfer their benefit to their spouse. For instance, one parent could choose to take two weeks of paid parental leave, while the other parent utilizes their own four weeks, plus an additional two weeks from their spouse for a total of six weeks.

As with the Cradle Act, the Economic Security for New Parents Act would require advanced notification be given to the Social Security Administration and employers, and that applicants meet certain work eligibility requirements.

Image source: Getty Images.

This is a terrible idea

Although the United States is the only country in the Organization for Economic Cooperation and Development not to offer paid parental leave -- and clearly something should be done to fix that -- the idea of allowing parents to essentially take out a loan against their future Social Security benefits is nothing short of terrible.

One of the biggest problems with providing parental leave benefits tied to Social Security is that the program doesn't have the ability in its current state to "lend out" a substantial amount of benefits. The trustees' report has suggested that outlays will outweigh revenue collection very soon, with the program's $2.9 trillion in asset reserves projected to disappear by 2034. Lending out money for parental leave benefits would put the program in an even more precarious position.

Parental leave benefits tied to Social Security may threaten economic growth and productivity as well. Even though these benefits would be paid via Social Security, rather than by an employer (thus saving that employer money), an extended absence for a key worker might result in reduced output or productivity for a company.

Furthermore, an analysis from the Urban Institute of Rubio's bill estimates that Social Security wouldn't recoup around 25% of the loans from a parental leave program as people die before reaching their claiming age, receive disability insurance, or simply don't work enough to reach the 40 lifetime credits needed for a retired worker benefit.

Whether it's the Cradle Act, Rubio's bill, or any other number of ideas that have been floated on Capitol Hill, borrowing against future Social Security income to cover a few months of paid parental leave is a terrible idea.

Author

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and investment planning. You'll often find him writing about Obamacare, marijuana, drug and device development, Social Security, taxes, retirement issues and general macroeconomic topics of interest. Follow @TMFUltraLong